Time Warner, Maxtor, Sun, and Semiconductors

October 18, 2004

I wrote on September 20th that I shorted Time Warner at $16.85 with a target of covering at $15.50 for an 8% profit. The stock has refused to fall below $16 even in the face of a market sell-off from rising oil prices and earnings warnings. So, it’s wise to cover at the current $16.33 for a 3% profit.

In that same article, I mentioned that I was waiting for lower prices on Sun Microsystems and Maxtor. I suggested that you could still probably get Sun for less than $4 and Maxtor for less than $5 if you waited a bit longer. Patience paid. Sun closed Friday at $3.97 and Maxtor at $4.44. Building positions at these prices will pay off down the road. Maybe not at the next exit, mind you, but down the road.

I’m also watching semiconductors: the Philadelphia semiconductor index, the Dow Jones semiconductor index, the Amex Semiconductor Holders exchange-traded fund (SMH), and ProFunds Ultra Semiconductor fund (SMPIX). With Intel’s earnings report last Tuesday blackening the already-dark sky above the sector, prices are getting tantalizingly cheap. If you know me by now, however, you know that I don’t buy cheap, I buy absurdly cheap. As Bill Fleckenstein wrote about Intel at MSN Money, the future can indeed get worse.

I’m particularly interested in ProFunds Ultra Semi because it invests in the Dow Jones semi index using leverage to achieve 150% of the index’s performance. That’s both up and down, of course, so it’s a risky proposition. The fund is down some 45% so far this year. The two-year chart looks like Mt. Fuji and the right-hand side is pretty close to the valley floor. The fund hit $11 in Feb 2003, $33 in January 2004, and is hovering around $15.50 now.

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